For many investors, the last few years have seen a gradual repositioning of portfolios towards stocks with considerable exposure to Asia. The reason for this is simple: growth rates are far higher in Asia than in the rest of the world. As such, a potential slowdown in China, the world’s second-largest economy, is a big deal for investors and, therefore, the FTSE 100 has sunk by around 1,000 points since May.
Some companies, of course, have greater exposure to Asia than others. For example, Standard Chartered (LSE: STAN) is very much focused on the Asian market and, during the credit crunch, this kept its bottom line in a much healthier position than its European and US-focused rivals. Furthermore, investor sentiment remained relatively robust and kept the bank’s investors in the black (or, at least, less in the red) than many of their peers.
Today, though, Standard Chartered arguably holds less appeal than its UK-focused peers. That’s because the Asian economy may not prove to be as strong in terms of growth figures as had been expected, while a new management team is seeking to de-risk the bank and focus on compliance, rather than seek immediate growth and expansion.
As such, many investors may feel that now is the right time to sell Standard Chartered and invest elsewhere. However, that could be the wrong move in the long run, since the bank continues to be highly profitable and, as soon as next year, is forecast to post a rise in earnings of 24%. This, when combined with a price to earnings (P/E) ratio of just 11.4, equates to a price to earnings (PEG) ratio of 0.5, which indicates that there is excellent value for money on offer in the long run.
Similarly, British American Tobacco (LSE: BATS) has endured a rather poor year. Its shares are down by 5% and, while that is a better performance than the FTSE 100 (which is down 10%), it lags behind many of its global sector peers. Part of the reason for this is that British American Tobacco is very much focused on emerging markets for growth and, while it has no exposure to China, a slowdown in emerging markets in general could hurt investor sentiment in the near term.
However, for long term investors it remains a superb buy. British American Tobacco has a yield of 4.6% and, with huge scope for price increases, it seems likely that profitability will continue to rise. This means that it is very likely that British American Tobacco’s dividend rises will beat inflation, thereby providing a hugely enticing income stock for the long term.
Similarly, beverages company, Diageo (LSE: DGE), also has excellent long term prospects. Its stable of brands is perhaps unrivalled in terms of their diversity and premium status in key markets across the globe. Additionally, the consumption of alcohol remains almost as stable as the smoking of tobacco and the use of utilities, which means that Diageo continues to be a highly appealing defensive play. This could allow it to outperform a struggling wider index in the short to medium term.
Furthermore, Diageo’s bottom line is set to return to growth in the current year and, after two years of falls in its earnings, this could be the catalyst to improve investor sentiment. Certainly, emerging markets sales may disappoint in the short run, but Diageo has very diversified sales across the globe, thereby making it a relatively resilient performer.